991063 Consumer Prices Jump 0.4%October 26, 1999Washington - Consumer prices jumped 0.4%, the biggest increase in five months, as energy and tobacco costs rose sharply. But outside of a few troublesome areas, prices remained generally well-behaved in September, the government reported, helping spur a relief rally on Wall Street. The Labor Department said September's increase in the Consumer Price Index was the biggest price surge since a 0.7% rise in April. But much of the increase reflected rising energy prices and another big jump in tobacco prices pushed through to pay for court settlements. Excluding energy and food, the core rate of inflation is up just 2% over the past 12 months, which Clinton administration chief economist Martin Baily noted is the best showing in more than three decades. “There is no widespread inflationary pressure, even as our economy grows and employment remains strong,” Baily said. In another report, the Commerce Department said that housing construction tumbled 3.2% in September, the second consecutive monthly decline, as housing felt the pinch of rising mortgage rates and Hurricane Floyd. Wall Street, which has been buffeted on fears of rising inflation, staged a relief rally Tuesday, with the Dow Jones industrial average up 100 points in late afternoon trading. Stocks suffered their worst week in a decade last week, as inflation worries increased. The government reported Friday that wholesale prices jumped 1.1% in August, the biggest gain in nine years. Many private economists said Tuesday's economic reports showed that overall inflation is still under control while interest-sensitive sectors such as housing are beginning to slow to a more sustainable pace just as the Fed desired when it pushed interest rates up in June and August. Still, many analysts looked for the central bank to raise rates for a third time when policy-makers meet on Nov. 16 because the economy continues to grow more rapidly than the Fed would like, given how tight labor markets are at present. “We still think the Fed will tighten in November,” said First Union economist Mark Vitner. “Their motivation is curbing excessive demand growth, not combating a sudden burst of inflation.” So far this year, consumer prices have been rising at an annual rate of 2.8%. While that is sharply higher than last year's 1.6% increase, which had been the slowest pace in 12 years, all of the acceleration has come from a rebound in energy prices. The higher inflation will mean a bigger cost-of-living increase for the 44.2 million Americans getting Social Security checks. The government announced Tuesday their benefits will rise by 2.4% starting in January, nearly double the 1.3% increase they received this year. That will mean an average increase of $19 a month. The decline in housing in September pushed starts down to an annual rate of 1.62 million single-family homes and apartments, still a high level that keeps the industry on track for a strong year even though mortgage rates are up more than a full percentage point since January. In September, housing construction was down in all parts of the country except the Midwest, with declines of 3.2% in the South and 25.7% in the Northeast blamed in part on the impact of Hurricane Floyd. Energy prices jumped 2.7% in September, the third straight big monthly gain. Gasoline prices climbed 2.6% last month while home heating oil shot up 6.2%, the biggest increase in three years. Through September, energy costs are rising at an annual rate of 16.1% after having fallen 8.8% in 1998 as American consumers benefited from a worldwide glut of crude oil caused by steep recessions in Asia. Food costs rose a modest 0.2% in September as a big drop in fruit prices helped offset increases for dairy products, beef and pork. Tobacco prices shot up 6.5%, the biggest increase since last December, as the industry continues to increase prices to cover court settlement costs. Clothing prices, which had fallen for four straight months, were up 1.2% in September, reflecting higher prices on new fall lines. But airline fares dropped a sharp 1.7%.
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